Carlos Slim's TracFone Under Fire in California

The world’s richest man is facing a backlash in California as a pre-paid cellphone company he owns tries to expand into the state’s lucrative market.

Mexican billionaire Carlo Slim’s TracFone Wireless Inc., which has already sold over 21 million, pre-paid cellular phones throughout the United States, is faced with the issue of whether the company should pay the state the same fees that more traditional cellphone and land-line companies already fork over. These state fees go to fund phone and Internet services to the poor, disabled and rural residents.

TracFone is the largest company in the U.S.’s expanding market for cheap, disposable cellular phones and pre-paid minutes. These phones, which can cost as little as $20 and come with 60 pre-paid minutes, have become popular in low income neighborhoods for people who don’t want or can’t afford to be burdened by year-long or multi-year contract.

Slim’s company has been under investigation by California lawmakers for over three years. California’s Public Utilities Commission ruled in February that TracFone was in violation of state law as it has refused to send the state required service fees, which the commission says could be as much as $20 million.

TracFone is appealing the ruling to the state Court of Appeal.

Los Angeles County lawmakers are also taking notice and plan to introduce a bill granting the state more authority to regulate prepaid cellphone companies.

Some Latino groups, such as Two Countries, One Voice, have voiced their own worries about Slim’s business practices in the state, much to the dismay of TracFone executives who argue that the company is out to help them.

"Our whole program is to save people money," said Rick Salzman, TracFone's executive vice president and general counsel, told the L.A. Times. "We generally provide a comparable service to our competitors at a lower cost, and it's less burdensome on the customer as well, with no early termination fees, no contracts and no long-term commitments."

The immigrant groups are angered at Slim’s business practices on both sides of the border for what they claim are his “monopolistic” business practices.

Slim – whose family fortune of about $74 billion puts him well ahead of Bill Gates and Warren Buffett on the Forbes List of billionaires – vehemently denies all allegations. He owns the dominant telephone landline company in Mexico --Telmex-- which controls about 80 percent of the country's market. In addition, his America Móvil owns upward of 70 percent of Mexico's mobile telephone market.

Gustavo Flores Macias, a professor at Cornell University for Latin American and Political Economy, believes the Mexican government should take more responsibility for any unfair business practices by making Cofetel, the Mexican regulatory authority, “more powerful and independent.”

“One could argue he’s doing what he’s been allowed to do, and if you’re not upholding the rule of law you’re able to get away with these things,” Flores Macias, said. “It takes two to tango.”